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May 3, 2023 (Vehement Media at COMTEX) – Global investment broker Oliver Hill observes that when you participate in cryptocurrency trading, your trade orders are sometimes executed at prices other than your desired ones. Orders are sometimes filled at a high price and sometimes at a low price. This phenomenon is commonly known as price slippage.
What exactly is drifting?
Many traders have a pricing strategy before placing a trade. You start trading only after analyzing the chart and setting a target price. Whether you buy or sell cryptocurrency, your goal is to make a transaction at a certain price. However, traders are forced to accept higher-than-expected prices when slippage occurs. This situation usually occurs when there are price fluctuations between the time of order and time of execution.
Start trading cryptocurrency
Slippage in cryptocurrency transactions occurs when there is a delay between when a transaction is executed and when it is completed. Various factors can cause this delay, including network congestion or a lack of market liquidity.
Cryptocurrencies that require more liquidity, such as a smaller market cap, are more prone to slippage. This is because the market may need more buyers or sellers to trade at a given price.
Slippage can be a big problem for short-term or day traders looking to enter and exit positions quickly. In this case, the price is moving so fast that it is difficult to limit orders to prevent deviations.
Ways to avoid slippage in cryptocurrency trading
While it's impossible to completely prevent slippage, there are ways to minimize its impact on your movement. Here are some tips:
1. Use limit orders
One of the best strategies for avoiding slippage when trading cryptocurrencies is to use limit orders. These are instructions to buy or sell digital assets at a fixed price or better. By using limit orders, you can ensure that your trade will be executed at the desired price level, thereby reducing the risk of slippage.
However, it is important to note that sometimes contact orders can only be executed if the market price moves too fast. In this case, the order will remain unfilled and you may need to adjust the price or use a market order.
2. Market control
Another way to avoid slippage is to watch the market closely. By watching the price of the cryptocurrency you wish to trade, you can identify potential pitfalls before entering a position.
If you notice prices are moving fast or there is a lack of liquidity, you may want to wait for a better opportunity to enter the market.
3. Use stop-loss orders
The draft can be reduced by using stop orders. This order involves setting a certain price level to sell the cryptocurrency if it falls below that point. By using stop-loss orders, you can limit your losses during dips.
However, it should be noted that this can trigger a trailing stop order. If the price drops too quickly, your order may be filled at a lower price than you expected.
4. Consider the possibility of trading on different exchanges
Different exchanges have different levels of liquidity, which can affect slippage. If you experience slippage on one exchange, consider trading on another, more liquid exchange.
High slip resistance and low slip resistance
Setting a higher slip tolerance percentage means you are willing to accept a higher slip rate. This can be useful in highly volatile markets where asset prices can change quickly and unpredictably.
High float tolerances are often used when trading in volatile markets or when investing in crypto projects with low liquidity and high transaction volume, such as coin toss projects. In such a situation, traders may be willing to accept a higher slippage rate to participate in the market.
However, high slippage margins can put traders in the lead. Front-running is the illegal practice of using non-public information to trade in the presence of other traders. This can generate huge profits at the expense of other traders who are not privy to non-public information.
On the other hand, setting a low slip tolerance percentage means you don't want to accept too much slip. This can be useful in markets with low volatility and high liquidity, where asset prices are relatively stable and predictable.
How to determine slip tolerance
Setting slip tolerance is a personal decision based on your business goals, risk tolerance and market conditions. You can adjust the slippage tolerance in the trading platform or exchange settings.
When setting slip tolerances, it is important to consider market conditions and the volatility of the asset you are trading. Higher slippage tolerance may be appropriate in high volatility markets, whereas lower slippage tolerance may be appropriate in low volatility markets.
Results
Slippage can be a big problem for cryptocurrency traders, especially short-term or day traders. However, you can reduce the effects of drift by using limit orders, following the market, using stop-loss orders, and trading on different exchanges.
Remember that it is impossible to completely avoid slippage and it is important to control your risk and be prepared for unexpected price movements. By following these tips, you can trade cryptocurrencies safely and reduce the risk of slippage.
Disclaimer: Our content is for informational purposes only. Depending on your circumstances, it's important to do your research before making any investment. You should seek independent financial advice from a professional or conduct your own independent research and verify any information you find in this article or rely on in making any investment decisions. We make no warranties and accept no responsibility for any loss or damage arising from trading or investment in connection with any information on this website.
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COMTEX_431582571/2748/2023-05-03T11:10:02
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The MarketWatch news department was not involved in the creation of this content.